Regulations and lack of adequate local insurers causing headaches for multinationals in Africa

Multinationals operating in Africa face a myriad of challenges to place compliant and cost-effective insurance, including finding adequately rated local insurers and dealing with a raft of different regulatory environments, according to Praveen Sharma, global leader of Marsh’s insurance regulatory and tax consulting practice. Speaking at Commercial Risk Africa’s London conference late last week, Mr Sharma said there are signs that regulators in Africa are beginning to work towards more harmonious insurance rules but stressed that progress is slow. Risk managers must do their best in difficult current conditions to make an informed decision on how to best place cover for their companies, with financial interest clauses one option, he said, speaking at the Risk Frontiers London Africa: Brexit and Trump – a golden opportunity for SSA? event. “Many multinational companies that I speak to have a minimum requirement to insure with a specific-rated insurer. Unfortunately, in many African countries there aren’t local insurers with those kinds of credit rating specifications. So we have a challenge. I dealt with a US mining client with an operation in one African country and the local insurer simply wasn’t up to their minimum rating requirements,” explained Mr Sharma. He said one option in such circumstances is to insure the financial interest of the parent company rather than the local subsidiary. “An option is not to buy local insurance if it is not compulsory. You buy insurance in your home country to cover the multinational’s financial interest in the African subsidiary. You pay the premium in the home country, receive claims in the home county and forget about transferring the money locally,” Mr Sharma advised. The expert said harmonisation of tax and insurance regulations across Africa would help insurers operate more easily throughout the continent and develop viable solutions for local and multinational firms. He noted that progress in this area via Conférence Interafricaine des Marchés d'Assurances (CIMA) code regulations has not been as swift as he would like, but said work by the International Association of Insurance Supervisors (IAIS) may improve matters. “The CIMA code and regulations harmonise rules across 14 Africa countries. It’s like an EU-lite. I raised the question last year of why can’t the African continent as a whole, or Sub Saharan Africa at least, create a similar regulatory framework in the best interest of the continent? It could be done, but I accept there are cultural issues and political issues. Unfortunately, I have not seen that kind of harmonisation,” said Mr Sharma. He added: “But the IAIS has issued a paper called the Insurance Core Principals (ICP). Most, if not all, of the regulators in Africa are trying to implement these core principles into their regulations. These principles follow the risk-based capital approach of Solvency II. But in Africa there is a restriction on reinsurance, premium ratings, commissions and so forth. So there are barriers that are causing issues for multinationals.” He went on to explain that multinationals don’t like surprises, and unfortunately often find problems with cross-border insurance after the contract has been signed. Risk managers must make use of all the information at their fingertips to avoid such surprises and balance compliance, cost and cover, he continued. “Risk managers need to use everything at their disposal to make an informed decision in advance. Multinationals want to be good citizens but it requires a balancing act. The risk manager’s job is to ensure assets are covered at a reasonable price while being compliant,” said Mr Sharma. “Multinationals should identify what and where the group exposure is and determine the regulatory and tax issues in the various countries. They must then establish what the options are and how the risk can be covered, and adopt a disciplined approach with all the stakeholders – risk managers, insurers, brokers, the tax department and the finance department – involved,” he concluded.

Regulations and lack of adequate local insurers causing headaches for multinationals in Africa

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Related Articles